There seems to be a lot of confusion out there about whether we're having a recovery or not. March retail sales were up, but unemployment claims and foreclosure rates just spiked. If you have to ask whether we're having a recovery, then we're not having one, at least not much of one. Along with Chris Martenson, I call it the best recovery that money can buy.
Before I continue, please take the time to watch this short video of economist Richard Koo from the INET Conference.
Because I told [Larry Summers] to tell the American people that this is a different disease, because until you tell them that, people will think this is an ordinary cold with a slight complication... and it's just an ordinary cold, [so] Americans will say just drink orange juice and the vitamin C will cure it, and the Chinese will say [just take] herbal medicines, and the Japanese will come up with something else. We can never get a consensus. But once you say this is pneumonia, then there's no debate.
As Koo argues, the global economy is not having a temporary bad spell, a particularly severe business cycle slump to be followed by skyrocketing economic growth. Structural imbalances in the global economy are the equivalent of a serious disease that will takes years, if not decades, to cure. Koo's calls our "pneumonia" a balance sheet recession. Past growth was built on leverage—there is now too much debt. For years we borrowed from the future to party in the present.
Let me use a different medical metaphor. After the crisis, all around the world, central banks lowered interest rates and expanded their balance sheets. All around the world, especially in the U.S. and China, governments applied massive fiscal stimulus. The patient had had a heart attack, and all this monetary stimulus got his heart beating again. But that doesn't mean the patient is going to be up & around just like he was before the cardiac arrest. He's not going to be out there playing tennis and having cocktails afterward.
And what gave our patient the heart attack? Here in America, for 25 years, that patient was taking every stimulant he could get his hands on. Steroids, amphetamines, you name it.
What we have now is the best recovery that money could buy. Many would argue that all this new stimulus and new public debt just made the longer term situation worse. They are almost certainly right. I differ on this point with Richard Koo, who appears to believe we need even more stimulus. You can't cure a private debt problem by creating a public debt problem.
So it is no surprise that there are continuing drags on the economy in jobs, the housing market, small businesses, the rising oil price, etc. People seem to think that a little Easter shopping constitutes a comeback. Everybody is bullish. As Mish reports, all of the economists—not some of them, all of them—badly underestimated how many jobless claims there would be last week. Tech Ticker's Henry Blodget and Aaron Task decided it was time to Freak Out because nary a Bear could be found among the investors they were talking to.
But if President Obama and his economic czar Larry Summers and Fed Chairman Ben Bernanke would level with the American people as Koo suggests, theses fantasies would be exposed for what they are. Unfortunately, this will never happen. Mendacity is built into the very structure of our waning Empire. The Powers That Be lie again & again to cover up the shameful, awful situation in this country. Our Democracy is pretty much gone, and Our Leaders are hoping you won't notice what bad shape we're in.
Henry and Aaron are right: when everyone is bullish and the Bears (like me) can't get a word in edgewise, you know we've entered another time of Mass Delusion. And you know what happened the last time everybody decided the economic growth party would last forever, that house prices would never go down.
I don't know the timing of future events, but you have been warned.
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